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tv   [untitled]    February 22, 2012 2:30pm-3:00pm EST

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and for these reasons, the president's budget calls for substantial additional support for economic growth and job creation alongside longer trm reforms to improve economic opportunity, improve long term growth prospect and restore fiscal sustainability. i want to applaud the congressional leadership for the progress they've achieved. they've reached on agreement to extend the payroll tax cut and emergency unemployment insurance. this is my second point. don't stop there. there are more things that we can do with bipartisan support, things traditionally had bipartisan support, it will be good to make the economy stronger in the short term. just because we agree -- we disagree now on the long term shape of tax reform entitlement reform doesn't have to get in the way of doing more things now that would help the economy in
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the short term. i'll just give you three examples. more help to get construction workers back on the job with substantial infrastructure program will be good policy. helping americans refinance to take advantage of lower mortgage rates is good policy. and better incentives for inves ing in the suits better policy. all have had broad support in the past and we shouldn't let the big disagreements we have get in the way of movement on those things now. so don't stop with the payroll tax extension. now beyond the immediate steps this is my third point, the president's buget lays out a long term strategy to strengthen economic growth and improve economic opportunity while reducing our deficits to more
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sustainable levels. i know conventional wisdom is this debate does not matter because congress is too divided to legislate in this election year. but this is a very important debate. it matters because it's about fundamental economic priorities, how to increase growth and opportunity and retirement security, how to reform our tax system, how we live within our means. we have to govern with limited resources and make choices about how to use the resources more wisely, particularly given the millions and millions of americans who will become eligible over the coming decades for medicare and social security. and it's important because as you all know, at the end of this year, we face the expiration of the bush tax cuts and the possible position of the sequester and that will force us to come to agreement on another substantial down payment on fiscal reform.
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so it's a debate we have to have now. we need to get work on how to build consensus on how to move forward in this case even though we're so far apart in the fundamental choices. we save $4 trillion over ten years, three trillion on top of the caps on discretionary spending we agreed to in august. now if congress were to enact these reforms, it would lower the deficit from just under 9% of gdp in 2011 to just under 3% of gdp in 2018. that would stabilize the overall debt burden as the share of the economy in the second half of the decade. that would put us back on the path towards fiscal sustainability and leave us much better position to con front the remaining challenges we face. and they're foremidable still that build in future decades as more americans retire. now under this plan, discretionary spending is projected to fall to its lowest level as a share of the economy since dwight eisenhower was president. and the president's proposal would also slow the rate of growth of spending in medicare and medicaid through the affordable care act reforms and additional proposals we laid on the budget. as we reduce spending, we also
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have to protect investment that's are important to expanding future economic growth. and that's why the budget makes a series of targeted investment proposals in education and innovation and manufacturing and infrastructure. these are not expensive proposals. there's things question afford. we propose to pay for them within a framework that reduces our deficits to more sustainable levels. now in order to achieve this balance, this balance between significant substantial deficit reduction over time with still some room for invest ams that matter, we're proposing to raise a modest amount of revenues for tax reform. the president's plan proposes roughly $2.5 in spending cuts for every dollar of revenue increases. these revenue increases would fall only on the top 2% of americans, not on the rest of the 98% of americans. they would raise revenues by roughly 1% of gdp. although slightly less than the proposals in the simpson-bowles
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commission. focusing on the top 2% is a more fair and better way to achieve fiscal sustainability, better for the economy and better than the impact of an equivalent amount of cuts in things like benefits to middle income seniors or into infrastructure and defense spending. we propose tax reforms that raise revenues not because we think it's good politics for us or that any of us like to do it. we propose it because we do not believe it is possible to meet our national security needs to preserve a basic level of health care and retirement security to competeeffectively without some increase in revenues as part of a balanced plan. now, we illustrate in the budgets a range of specific tax changes that could be added on to the present tax system to raise the necessary amount of revenue. but we think the best approach to get there is through would be through comprehensive tax reform.
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we've outlined a general set of principles that will be designed to make the system more fair, more simple, better encouraging investment in the united states. we're going to lay out in the coming weeks a broad framework for corporate tax reform designed to achieve that objective, more simple, more fair, better for investing in the united states. and we think that's a good place to start. i hope as the chairman said, there is the prospect of bipartisan consensus on a framework of tax reform like. that final point. i know there are members of congress who are critical of the proposals and would prefer a different strategy. you can judge our plan against the alternatives. let me say where we agree and i think where we disagree. where we agree is that our fiscal deficits are unsustainable. they have to be brought down over time and do a lot of damage
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to this country and we agree the commitments we made in medicare and medicaid are unsustainable and unaffordable over the long run. but we disagree on some fundamental respects. some of you have suggested that we cut deeper and faster with more severe austerity now. in our judgment, that would damage economic growth. it would reverse the gains we've achieved at getting more americans back to work and it would put more americans into poverty. a program of severe immediate austerity now is not a growth strategy. we can't cut away economic growth. you have to be very attentive to an economy still healing from the crisis to make sure we're doing things that help growth and not hurt growth in the short run. second, probably more fundamental contrast between the two plans is there some that suggest we restore fiscal balance without raising any additional revenue from anyone.
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or even by cutting taxes further. now in our judgment, to do so would necessarily entail deep cuts in benefits for retirees and low income americans, cuts in invest ams in education and innovation and hurt growth and cuts in defense spending that would damage our national security interests. so the choice we face is not about whether we should reduce or deficits because we all know we have to do that. it's about how fast we do it, how quickly we do it, fundamentally about whether to do it with a balanced plan that helps growth in the short run and long run or with a plan that will place more of the burden on cuts in national security, medicare, low income programs, education innovation, infrastructure in ways we think is unfair and damaging to our interest as a country. these are tough reforms. but it's a balanced mix of
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spending cuts and tax increases. it gives us room to make investments that will improve opportunities for americans. it will help protect our basic commitment to retirement security and health care for the elderly and the poor. it provides substantial immediate additional help for the average american alongside reforms to help restore long term sustainability. it's not going to solve all of our challenges. even if you embrace the proposals today, we're still left with substantial additional challenges. but it would put us in a much better position to meet those challenges. thank you, mr. chairman. i'd be happy to try to respond to your questions. >> thank you. i guess we will agree to disagree on a few of those points. here's the crutch of it i want to get to. do you think this budget averts the deterioration of our fiscal problem? >> as i said, you know, we're not claiming this solves all the problems facing the country but it does meet the critical essential test --
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>> which is? >> of restoring our deficits to a more sustainable position for the next ten years. the tests there which is a test you embrace in your plan, too, is to make sure you get deficits down below 3% of gdp and hold them there. and if do you that, what happens is our overall debt burden is the economy stops growing at a level we can manage and starts to come down. so we meet that test. and then we help lower the trajectory of cost growth in the outer decades that comes from millions of americans retiring. but we still would face even with this framework more work to do in that long term demographic challenge. >> bring up slide 13. because i just don't see the rhetoric matching the results. and i'm looking at your budget. page 58 in analytical perspectives, you say that this is your budget, says that the government positioning gradually deteriorates.
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that our fiscal condition deteriorates. these are your numbers. >> it shows, mr. chairman, is -- >> your deficit. >> good chart. just exactly what i said. if you look at 2012 for the next ten years, it stabilize that's debt burden as a share of the economy. >> so -- >> then what happens is, exactly what i said. >> so we allow it to take off? >> no. and then you're right. as millions of americans retire, then those costs and medicare, medicaid start to increase again. that's why we're saying openly and directly to you that we're going to have work to do. now -- what you do is, i think on your budget although i know you're going to have a new one coming is you would lower that path in ways that would substantially increase the burden of health care costs on middle income seniors. and although we agree with you, we're going to have more work to do. but we're not going to adopt an approach that would undermine
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that basic benefit. >> go ahead and show slide a if so you brought it up. i know you didn't actually want. the red is the status quo. that's the base number we're on. >> you could have taken it out to 3,000 or to 4,000. >> this is last year's budget. >> yeah, right. we cut it off at the end of the century. economy, according to cbo, shuts down in 2027 on this path. >> i like this chart. i saw this yesterday. you're talking about a half century going out. but if you look at the gap between us -- >> i understand the gap. >> it's a pretty small gap. and that gap, though, that 10 to 20 gap is all we're debating to day is a gap where you're achieving that slightly diminished path. >> this is your time. it will take a long time. here's the point. leaders are supposed to fix problems. we have a $99.4 trillion
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unfunded liability. our government is making promises to americans that it has no way of accounting for them. and so you're saying, yeah, we're stabilizing it but we're not fixing it in the long run. that means we're going to keep lying to people. we're going to keep all the empty promises going. what we're saying is in order to avert a debt crisis. you're the treasury secretary f we can't make good in our bonds in the future, who's going to invest in our country? we do not want to have a debt crisis. and so it comes down to confidence and trajectory. do we have confidence that we're getting our fiscal situation under control, that we're preventing the debt from getting to the catastrophic levels? and if you go to the preceding chart, number 13, you're showing that you have no plan to get this debt under control. you're saying well stabilize it but then it's just going to shoot back up and so my argument is that's europe. that is bringing us toward a european debt crisis. because we're showing the world
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the credit market's futures, seniors, people organizing lives or on the promises being made to them today, we don't have a plan to make good on this. >> mr. chairman, as i said, i don't -- maybe we're not disagreeing in a sense that i made it absolutely clear that what our budget does is get our deficits down to a sustainable path over the budget window. and let's talk to the why do they take off again? why do they do that? >> because we have 10,000 people retiring every day. >> that's right. >> and health care costs going up. >> millions of americans retiring every day. and that will drive substantial rate of health care cost. and so you are right to say we're not coming before you today to say we have a definitive problem. what we do know is we don't like yours because what yours would do is put an undue burden on middle income senior and raise the burden on them for rising health care costs.
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you're right that governing is about, you have to make choices between the immediate and urgent. >> in interest of time, we have -- we're fine that you don't like our path. that's what politics and republicans and democrats and difference of opinions are all about. but if we don't come up with a plan for this country, we're going to pull the rug out from under people who are relying on the benefits. we don't agree with your interpretation of our plan. we provide less for the wealthy. we think that's the smart way to go on funding the important guaranteed programs. >> i don't -- >> put all that aside -- >> i don't think that is a fair description of your plan. >> i do. put all that aside. if we don't start showing the country that we have a plan to make good on these promises, to secure these retirement benefits, then we'll have a debt crisis. let me go to something where maybe we have a little more agreement on. on tax reform. i've enjoyed reading some of your quotes where you said there's a better way to do tax reform than what you're
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proposing in the budget. i think you say a better way toa broaden base. i couldn't agree more. we've had all these bipartisan ideas. we've had all the bipartisan working groups. let me just go to a couple charts. go to slide ten. a lot of folks think that if we lower tax rates then the rich are going to rip everybody else off. they're going to get away with murder. take a look at the facts. when we have lowered tax rates over -- since 1980, the share of the tax burden for the wealthier people has gone up. 1986 is a good example right there. the shares shot up.
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so the wealthy actually pay a higher portion of the tax burden as those tax rates have gone down. why? three reasons -- we provides middle and lower income relief for families throughout that time. cutting top rates actually increased economic growth. upward mobility and prosperity. >> not so much, actually. >> alas -- >> i'll get to the next one. we'll show you an adjustment of that. and third, we've taken away loopholes that benefit the well off. >> also not so much. >> no. so that's the point i'm trying to get to. so in 1986, we closed loopholes, lowered rates. we went from a 70% rate to a 21% rate over that decade alone. and so let's go to slide 14. this shows -- this is the cbo's chart. index progressist in taxes. this is income distribution which goes to your earlier point. it shows you that in 1980 to today, we are not lowering the distribution of the tax burden. it shows you that like after '86, by closing loopholes and lowering rates, we can get better growth and the wealthier will pay a higher proportion of
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the burden. so -- and that's controlling for changes in income distribution. so the point i'm trying to make here is there ought to be a bipartisan element of compromise here because what we've shown, for those worries about the distribution or the burden, you can actually keep higher end people paying more of the tax burden and get a better system. but we need another round of base bartering and rate lowering. >> i can respond? >> it's time for a new round. that's my point. >> i can respond to this? >> yeah. >> as i said, i agree with you that we're going to need tax reform. we should all embrace it. the basic elements will lower rates and broaden the base. so let's talk about -- >> individuals as well? >> absolutely. so let's talk about what i think separates us still in terms of basic strategy.
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the dominant plans out there that have bipartisan support, simpson-bowles, domenici-rivlin, the senate six share in common with us a basic recognition that you need through tax reform to find a way to generate a modest amount of additional revenues. so in our proposal, in our budget, revenues this year of gdp would rise modestly back up to around 20%. that's slightly lower than where they ends up in simpson/bowles. higher than you're going to get through current law. 1% gdp higher. i think in your framework last year you showed revenues rising to 19% of gdp. >> right. >> although, you don't necessarily explicitly embrace rate reform.
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i think the two main differences between how we think about this today, we have to test this when we start to get serious about it, is a explicit commitment yo about it, is an explicit commitment you need from both sides, as part of a balanced plan, need tax reform that's going to raze r raise 1% in additional revenues. and one other difference. you have to ask yourself, how do you want to allocate that burden? in simpson-bowles, rivlin-domenici, and we would take the same approach is you're going to have to have effective tax rates. you have to have the effective tax rates go up modestly. we think they should go up only for those top 2% of americans. >> let me end you because time is cutting out. i want to be -- he's got to go to a signing thing. i want you to go to the signing thing. that's actually bipartisan. that's not what you're proposing in this budget.
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everything you're saying sounds great. but you're proposing to raise tax rates and then add more complexity to the tax code. all this green stuff, all these tax credits. >> as i said in the opening remarks, we're showing you -- in some ways we're trying to motivate tax reform. because we're saying if you have to raise -- >> by proposing the opposite? >> no. i want to be clear about this. we're saying if you have to raise as part of a balanced plan 1% of gdp in revenues as every other bipartisan rule has said you have to do, and you're going to do it on top of the current tax system, here's some ways to do it. but we're saying then, the president said this over and over again, we think the best way to get there is through rate lowering, base broadening, more simple, more efficient and more fair. but the main fundamental difference between us is how much revenue are we going to lead. if you guys can commit explicitly to raise revenue through tax reform, we'll be on
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the way. but then we'll have a debate about who should bear that burden. our judgment is the top 2% of americans should bear that burden through a higher effective tax rate. that's our judgment. >> let me get you there. i'm going to have the last word. we'll keep going around. i'm not trying to pop you here. but this is what's frustrating to us. your rhetoric never matches your actions. i'm not talking about you personally. i'm talking about the administration. >> i don't think that's fair, mr. chairman. >> no. you're showing us a budget to raise tax rates and add complexity to the tax code. >> the burden of governing when you propose a budget -- >> this is your fourth one. >> that's right. exactly. >> you haven't proposed what you've said in four budgets. >> that's not true. what we said is here what is you have to do as part of a balanced comprehensive deficit reduction plan if you want to get enough revenue out of this in a fair way. and what we propose to do in this context is to modestly increase the effective tax rate on the top 2%. >> the top effective rate goes to 44.8% on individuals. now --
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>> not the top marginally. not the top effectively. >> first of all, just assume for the sake of arguing that i'm right, which this thing's been fact checked a million times. i know, yeah. the point is -- yeah, exactly. the point is you're raising effective marginal tax rates. in wisconsin, nine out of ten businesses file as individuals. you know, we've got all our -- >> we're only going to raise them if you decide to agree to rise them and you decide you'd rather not do comprehensive tax reform. you're right. they will raise effective tax rates on the top 2%. >> these things you say, you're not putting in your budget. this is the fourth budget. we hear all this happy talk about coming together. >> but, mr. chairman -- >> we don't see those proposals in black and white in your budget. >> one last thing. we have never claimed this budget included a comprehensive proposal for individual tax tax reform. we spent, as you know, four months working with the house republican leadership this
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summer on a way to get a balanced plan with comprehensive individual tax reform that raised revenue alongside substantial savings in medicare and medicaid. and we found in that process, frankly, that you were not really there yet. not quite ready. and so for that reason, we decided that let's do some foundation laying and lay out some broad principles. >> i don't even know how to respond. mr. van holland? >> is this on? there we go. again, welcome, mr. secretary. you know, having participated in some of those rounds, my sense was they basically collapsed because the fundamental issue that we're debating right here in this committee, which is whether or not to take a balanced approach to addressing
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our deficit and challenge. we didn't have a partner to compromise on a balanced approach. let me just say what the co-chairs of the bipartisan simpson/bowles commission said. with respect to the budget. everyone recognizes, including you, that as you get to the second ten years, we got a lot of work to do together. but here's what they said. in the framework he announced in april and what he submitted to the select committee in september, the president embraced many of the goals and prince pms outlined by the fiscal commission and incorporated some of the policies we proposed. we're pleased that president's latest budget continues to focus on deficit reduction and are also encouraged to see real specific policies for limiting tax expenditures, slowing health care cost growth and reducing spending throughout the government. i would suggest that if we could have a partner in coming to that balanced approach that we talked about, we would be able to tackle some of these things. now, i'd like to put up a chart just to address what is the sort of continuing myth which is that
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relatively small changes in the top marginal rates are the chief driver of job growth. and that's just been proven false by history on numerous occasions. what you see here is after the 1993 budget agreement when the top marginal rate was raised to 39.6%, you saw over 20 million jobs created during that period. after the 2001, 2003 tax cuts, so-called bush tax cuts where they reduced the top rate, by the end of that period, you saw a net loss of jobs. now, obviously there were lots of things going on. but the major pint here is that minor changes in the top marginal tax rate are not the primary drivers of growth in our economy. of course, the other benefit of that higher rate was, as the secretary said, it brought in more revenue. which meant that at the end of
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that ten-year period, in the year 2000, it was the last time we actually had a balanced budget. a balanced budget which helps contribute to long-term economic stability and growth. so i think it's important to keep in mind these historical facts as we debate the whole question of tax policy. now, i want to go to another slide here because yesterday -- this is just -- very briefly, this shows the trajectory of the president's budget as proposed. it is a plan. it's a responsible plan. and as the secretary testified, it gets the deficit below 3%. 2.8% of gdp at the end of the ten-year window. and many have said this is a budget full of gimmicks. for those of you who are newer to this committee, i want to show you what president obama's budget would look like if we used the so-called gimmicks that were used in the previous administration's budget. just because a lot has been made of that.
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if we go to the next slide. what you see on the left are all the costs that were not counted in the bush budget over the ten-year period. in other words, the bush budget assumed that we weren't going to fix the amt. they assumed for ten years the amt would spring back into effect and you'd have a tax increase on 25 million americans. they assumed we'd never take care of the doc fix. and so if you were to convert president obama's budget into the president bush methodology, you'd get the following. let me go to the next slide, please. the top red line is the president's budget using the straight-forward accounting techniques and says 2.8% of gdp. that blue line, that's what president obama's budget could claim if you used the bush administration's accounting gimmicks. so the secretary's acknowledged that we've got a lot of work to
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do as we deal with the demographic changes ten years and beyond. >> what that tells me is the enemy is omb. >> what it tells me is that -- that this is -- well, except for in this case omb actually did it the way i think we'd want them to do in terms of calculating the likely outcome. now, i just want to end with this. because i do have -- [ no audio ] i have to leave early because i have to sign the payroll tax cut conference. you raised the issue. the chairman raised the issue. fundamentally we've got to figure out a way to come together to resolve these issues. there are some basic disagreements. we believe it's important in the


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